If your business paid for emergency leave during the COVID-19 pandemic, you may be eligible for certain payroll tax credits.
Billions of dollars in aid resulted from a series of laws passed around March 2020. These laws were intended to offset the financial burden from small business owners who continued to pay employees wages and paid emergency leave during the pandemic. Now that the national health emergency is over, businesses must be vigilant and claim any rightful tax credits that remain from the pandemic-era laws.
Family First Coronavirus Response Act and Tax Credits
Under the Families First Coronavirus Response Act (FFCRA), private American employers with fewer than 500 employees could receive payroll tax credits to offset the costs of the requirement to provide employees with qualifying paid leave for specified reasons related to COVID-19.
The mandate ended in 2020. However, the American Rescue Plan Act (ARPA) extended and expanded the payroll tax credits, allowing covered employers to take the credits until Sept. 30, 2021, if they voluntarily provided employee paid leave under the FFCRA framework. Keep in mind that the credit could be affected by local and state COVID-19 leave requirements and the interaction with the requirements under FFCRA. Another caveat is that an employer could only qualify for the federal tax credit if the leave met the requirement of the original FFCRA mandate.
What You Need to Know About FFCR Act
From April 1, 2020, through March 31, 2021, American private employers with fewer than 500 employees and self-employed individuals could claim certain COVID-19-related leave credits. The maximum leave days varied based on the situation and the calculation was dependent on regular work hours. Qualifying reasons for leave during this period included various COVID-19-related circumstances, and part-time employees received leave equivalent to their regular hours.
From April 1, 2021, through September 30, 2021, healthcare providers and certain governmental employers became eligible for the credits, and the limit on self-employed family leave credit increased. Non-discrimination rules were also established. Also, during this period, more reasons for leave were added, including COVID-19 testing and vaccination-related leave.
Wage calculations for paid sick leave depended on the reason for the leave, with varying pay rates.
The American Rescue Plan Act (ARPA) introduced changes in the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EFMLEA), affecting the refundable portion of credits and other details.
Under EFMLEA, the maximum leave amount and eligibility were modified, allowing for an increase in the aggregate amount and extending eligibility to healthcare workers and emergency responders.
Organized Recordkeeping Is Critical for Compliance and Reimbursement
Regardless of whether you granted leave, you must keep all the requests and time tracking information for up to four years. The Department of Labor requires employers to maintain the following documentation for four years:
- Documentation demonstrating how the employer determined how much paid leave an employee was eligible for
- Documentation showing how the employer determined the amount of qualified health plan expenses that were allocated to wages
- Copies of completed IRS Forms 7200 and 941 that employers submitted to the IRS (If you use a third-party payer to meet employment tax obligations, you’ll need a copy of their records to meet this requirement).
Although the pandemic may be over, many of the record-keeping and reporting requirements for businesses will carry over for several years as the reconciliation between applications for tax credits and reimbursements continues. It is always a good idea to maintain clear, consistent records, in an organized fashion, for the required time so that you can back up any claims when needed.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.
Recent Comments